Like several other leading British banks, Standard Chartered (LSE: STAN) suspended its dividend earlier in the year because of the pandemic.
British regulators were concerned about the highly uncertain and economically destructive impact of the coronavirus, and asked banks to not pay out dividends. Standard Chartered canceled its planned final fiscal year 2019 dividend of $0.2 per share.
The dividend suspension worsened the already bearish sentiment around STAN and likely sent the stock lower. Recently, however, things have improved.
In December, Britain and the US both approved a Covid-19 vaccine from Pfizer that’s around 95% effective. Several more vaccine candidates could be approved soon.
STAN itself has made something of a comeback as hope builds for the beginning of economic normalization next year. Since late October, shares have risen over 37%.
Given the stock comeback, here’s what I think will happen next for Standard Chartered’s dividend.
Reasons I believe Standard Chartered will pay a dividend
I reckon the odds that Standard Chartered resumes its dividend sometime in the next year are very good.
First, British regulators at the Bank of England are more open to bank dividend payments now that a Covid-19 vaccine exists. Britain’s Prudential Regulation Authority (PRA) recently said, “Weighing those considerations, and consistent with the PRA’s view that distributions are an important and necessary part of the functioning of the banking system, the PRA judges that an extension of the exceptional and precautionary action taken in March is not necessary”.
Second, STAN’s financials are strong enough to support a dividend, in my view. The bank is strongly capitalised, with a CET1 ratio of 14.4%. It is also profitable. For the third quarter, Standard Chartered reported earnings per share of 13.6 cents. I reckon there is a pretty decent chance the bank’s earnings could also increase.
Growth in emerging and developing markets in Asia could rebound rather quickly. For example, in an October report, the IMF estimated emerging and developing Asia will grow 8% in 2021. This is up from an estimated shrinkage of 1.7% in 2020. Standard Chartered gets a lot of its profits from Asia.
Management themselves have also said that they may resume shareholder returns next year, which presumably could include dividends.
Dividend amount?
In terms of how much Standard Chartered could pay in dividends next year, it’s uncertain. For 2019, STAN reported underlying earnings per share of 75.7 cents. The board originally intended to pay a total ordinary dividend per share of 27 cents. That gives Standard Chartered an intended 2019 payout ratio of 35.67%.
For fiscal year 2021, if STAN earns the estimated $0.61 per share that analysts expect, and management maintains the same payout ratio of 35.67%, the bank would pay around $0.22 per share.
Given there is still a lot of uncertainty, however, I think Standard Chartered might pay a lower annual dividend, at least for next year. Interest rates are still low, and the manufacturing and distribution of Covid-19 vaccines will be a difficult process.
No matter what the final dividend amount next year, however, I’d still buy the stock given its low price to book value ratio of 0.44. I reckon the stock could increase if management executes and interest rates normalize.
